CPC launches four-prong approach to housing affordability

The mortgage qualifying stress test is facing some stress, with the release of the Conservative Party of Canada’s (CPC) new four-point housing policy as the federal election gets closer.

The points are:

1. Fix the mortgage stress test to ensure first-time home buyers aren’t unnecessarily prevented from accessing mortgages and work to remove the stress test from mortgage renewals.

2. Increase amortization periods on insured mortgages to 30 years for first-time home buyers to lower monthly payments.

3. Launch an inquiry into money laundering in the real estate sector.

4. Make surplus federal real estate available for development to increase the supply of housing.

The policy comes on the heels of the Liberal Party’s pledge to tweak its first-time home buyer incentive plan because it can’t help first-time buyers in Canada’s priciest markets.

The Liberals have refused to tweak the stress test, says Tom Kmiec, the CPC candidate in Calgary Shepard.

“It is clear that the Liberals’ heavy-handed mortgage stress test has had significant unintended consequences that have robbed young families of the ability to step into their first home and spun the wheel of fortune in favour of wealthy cash buyers and leveraged investment funds,” says Kmiec. “Mortgage Professionals Canada has estimated that 100,000 Canadians have been prevented from buying a home due to the stress test and that 18 percent of prospective buyers, who could currently afford their preferred home, would fail the stress test.

“More and more middle-class buyers are being priced out of the market due to the one-size-fits-all approach of the stress test.”

Mortgage amortization is also a one-size-fits-all approach, says Kmiec.

“Most first-time home buyers have their best earning years ahead of them. Increasing amortization periods to 30 years will help hardworking Canadians get into the housing market sooner so that they can get ahead,” he says. “The insured mortgage of today is a vastly different product than it was 10 years ago. In the time since the maximum amortization was reduced to 25 years in 2012, countless regulatory changes have strengthened the mortgage market to the point where reintroducing the 30-year mortgage is an appropriate step to help first-time home buyers.”

The CPC’s housing policy has been well-received by the two largest housing associations in Canada.

“Measures such as fixing the mortgage stress test and increasing amortization periods on insured mortgages to 30 years for first-time home buyers and making use of federal lands to increase housing supply are recommendations that the Canadian Home Builders’ Association has asked every federal party to adopt,” says CHBA CEO Kevin Lee. “(The CPC) announcement aligns with our association’s recommendations that every federal party introduce smart and sensible housing policy measures to improve housing affordability for all, especially well-qualified first-time buyers that have been locked out of homeownership in recent years. These measures answer the call for unlocking the door to homeownership.”

CHBA has also welcomed the New Democratic Party of Canada’s promise to re-introduce 30-year terms to mortgages for entry-level homes for first-time buyers and given tepid approval to the Liberal’s First-Time Home Buyer Incentive.

“While shared equity mortgages are appropriate for some as a complement to mortgage rule adjustments, modifying the stress test smartly and providing 30-year amortizations for well-qualified first-time buyers are the best approaches,” says Lee.

“Realtors have long asked for common-sense solutions designed to help Canadians purchase a home of their own,” says Jason Stephen, president of the Canadian Real Estate Association. “The measures announced by the Conservative party include suggestions we’ve been making to policymakers, such as fixing the mortgage stress test and removing it for mortgage renewals. We’re also pleased with the proposal to increase amortization periods, which ultimately provides greater flexibility for home buyers looking at financing to purchase a home of their own.”

James Laird, co-founder of Ratehub Inc. and president of CanWise Financial, likes the CPC’s logical approach to the stress test.

“The Conservatives announced that when Canadians switch their mortgage from one lender to another, they no longer will have to pass the stress test,” says Laird. “This is an intelligent and long overdue amendment to the stress test because it never made sense that your existing lender did not have to stress test you whereas if you move to another lender, you had to re-qualify completely including the stress test. Those differing qualifying standards at renewal allowed those existing lenders to charge high mortgage rates because they knew that their customers would have to pass the stress test to go with a different lender. This inhibited Canadians with mortgages up for renewal from shopping around to find the best rate.

“There was no logic to the existing lender not having a stress test and the new lender having a stress test.”

First-time home buyers are the most important cohort of buyers.

The minute they get into homeownership, they start building equity, which gives them the power to move up the home-buying ladder. This in turn provides a market for owners who want to sell their homes and also move up, or downsize.

“The Office of the Superintendent of Financial Institutions has already established a committee tasked with monitoring the impacts of the stress test,” says Kmiec. “A Conservative government would work with OSFI, as well as industry experts, to identify where the stress test has gone too far, and how to best balance the homeownership goals of Canadians, with the need to protect the strength and stability of Canada’s housing markets.”

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